Working Capital Management


DEFINITION of 'Working Capital Management'

A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses.


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BREAKING DOWN 'Working Capital Management'

Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital.

A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management.

  1. Current Assets

    A balance sheet account that represents the value of all assets ...
  2. Cash Flow

    The net amount of cash and cash-equivalents moving into and out ...
  3. Working Capital

    Working capital is a measure of both a company's efficiency and ...
  4. Ratio Analysis

    Ratio analysis is quantitative analysis of information contained ...
  5. Risk Analysis

    The study of the underlying uncertainty of a given course of ...
  6. Working Capital Turnover

    A measurement comparing the depletion of working capital to the ...
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  1. What are the components associated with working capital management?

    There are three main components associated with working capital management: accounts receivable, accounts payable and inventory. The ... Read Full Answer >>
  2. Does working capital include inventory?

    A company's working capital includes inventory, and increases in inventory make working capital increase. Working capital ... Read Full Answer >>
  3. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  4. Are dividends considered an asset?

    Whether dividends paid on stock are considered an asset depends on which role you play in the investment: the issuing company ... Read Full Answer >>
  5. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  6. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>

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